Image: UBS

The most important information at a glance

  • Increases in key interest rates have made mortgage interest rates more expensive. You can hedge against rising interest rates.
  • You should monitor interest rate trends on an ongoing basis – for example, by means of an interest rate alert – so that you can adjust any measures to the current situation.
  • Take out a forward mortgage to lock in the current interest rate.
  • Divide a mortgage into several tranches with different terms and consider if it might make sense for you to opt for a SARON mortgage.

In its assessment of 21 September 2023, the Swiss National Bank (SNB) decided to keep the key interest rate at 1.75 percent. It justified its decision not to introduce a new hike by citing economic risks for the Swiss economy and the fact that the tighter monetary policy pursued in recent quarters is continuing to counteract existing inflationary pressures. Even though UBS does not expect any further tightening of monetary policy, the SNB has not ruled it out.

Recent increases in key interest rates combined with higher market rates have made both money market and long-term mortgages more expensive.

Many who want to take out or renew mortgages are now asking themselves: How can I protect myself against rising interest rates? This question is difficult to answer but we have put together three main action points to help you find a solution that’s right for you.

1. Keep monitoring interest rates

As mentioned, interest rates are on the up. Updates or corrections of previous forecasts, as well as announcements from national banks, are published frequently. Now is therefore a good time to set up an interest rate alert. This will allow you to better assess the current situation and take appropriate action to protect your mortgage. Subscribe to the UBS interest rate forecast and receive regular updates and forecasts for a period of between one and two years.

Interest rate forecast in your mailbox

What’s next for interest rates? The UBS interest rate forecast gives you regular, free updates by email on the current situation and future developments. You then have a solid basis for making a decision when your mortgage comes to an end.

2. Take out a forward mortgage

What exactly is a forward mortgage?

With a forward mortgage you take out a fixed-rate mortgage in advance that you do not need until a later time, allowing you to secure the current rate of interest. You will often pay a forward surcharge for this peace of mind. A forward mortgage can be described as a fixed-rate mortgage with an insurance premium for the amount of interest. The interest rate can often be fixed up to 12 months in advance, sometimes even up to 18 or 24 months in advance.

How is the forward surcharge calculated?

The forward surcharge is usually incorporated into the mortgage interest rate and is therefore spread across the full term of the mortgage. One-time premiums also exist but they are an exception.

The surcharge on a forward mortgage usually depends on how far in advance it is fixed: the shorter the period, the lower the surcharge. At UBS, the conditions are simple, clear and beneficial: the interest rate can be fixed up to 12 months in advance.

The UBS Forward Mortgage in detail

The fixed-rate UBS Forward Mortgage is the right answer for you if you know exactly when in the next 12 months you will need your mortgage and want to be sure about costs.

When is a forward mortgage worthwhile?

Whether a forward mortgage makes mathematical sense can only be answered with hindsight, because within the time frame in question the interest rate of a fixed-rate mortgage must rise to such an extent as to be higher than the interest rate of the forward mortgage plus the forward premium. A forward mortgage can also make sense when interest rates stay the same or even fall slightly: Owners looking for peace of mind are sometimes glad to know the interest rate from the start, with no risk of unpleasant surprises.

Calculation example: If the interest rate for a fixed-rate mortgage with a term of 10 years is currently 2.75 percent and the forward premium for a one-year advance is 0.15 percent, the interest rate on the fixed-rate mortgage must rise to at least 2.9 percent in the 12 months of the lead time for the forward mortgage to be worthwhile.

Answers to the question of whether a forward mortgage makes financial sense assume that you know the precise date from which you need the mortgage. When you renew a mortgage, you know the date right from the start. However, the date will not always be set in stone if you are buying a home and looking for your first-ever mortgage. In the event of delays, this can mean that the mortgage is disbursed before you actually need the money.

3. Combine different terms

Rising interest rates suggest that a money market mortgage may not be the best solution, as it will become more expensive in this type of interest rate environment. However, studies have shown that in the longer term, money market mortgages are cheaper than fixed mortgages, even when interest rates are rising.

In a normal interest rate environment, money market rates are lower than interest rates for longer-term financing, but they can also change relatively quickly. This makes the UBS SARON Mortgage particularly suitable for people who follow events on the money and capital markets and are able and willing to cope with the financial consequences of interest rate fluctuations.

One option could be to divide a mortgage into several tranches with different terms. This is a good way of protecting yourself against the risk of rising interest rates over a long period. It’s good to know that UBS SARON Mortgages can be converted into fixed-rate mortgages at any time.

The ideal financing strategy

The ideal solution is often to combine several mortgages with different terms. Let our experts show you the right financing strategy for you in a consultation.

Summary: The right solution is one that is tailored to your needs

As you can see, there is no single correct or suitable strategy, only one that is right for you based on your personal need for peace of mind and how motivated you are to monitor interest developments. That is why it’s worth getting professional advice from UBS. We’ll look at the situation from every possible angle and propose a strategy that’s right for you.

Frequent questions about forward mortgages